Free the Cell Phone!

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Free the Cell Phone!

Last week, I was contacted by a small company that I'll call Unlocko. Unlocko sells software that "unlocks" mobile phones so owners can select different cellular providers on the same handset. The company had received a cease-and-desist letter from a large mobile phone provider, which I'll call CellPhoneCo.

Like most U.S. cellular providers, CellPhoneCo electronically locks the handsets it sells so the phones can only be used with CellPhoneCo's service. CellPhoneCo claims that the sale of unlocking software is illegal.

The financial motive behind this claim is obvious. Companies have been using the razor blade business model to guarantee a steady stream of revenue ever since, well, the razor blade. Cell phone companies sell you a phone at a discount, and then make up the difference by requiring you to sign a multi-year contract promising to pay monthly fees for mobile phone service or to fork over a hefty termination penalty if you break the deal.

But many customers, particularly those who travel internationally, want more choice. They may be perfectly happy paying their service provider the usual monthly fee to use their GSM phone in the United States, but in Europe they want to use the same phone with a European carrier that won't charge for roaming or long distance. Or they might find that their usual carrier doesn't have reliable service at their summer house, and they want to use a different provider while vacationing. Or customers might want to take the same phone to a different carrier after their service contract ends.

As a result, a burgeoning market has developed for unlocking software that allows customers to modify their phones to accept signals from the service provider of their choice.

Here, CellPhoneCo is making a novel argument: that it can stop a business with which it has no contractual relationship from selling software that customers might use for these purposes. Does CellPhoneCo have a legal right to squelch unlocking software?

To lock out the unlockers, CellPhoneCo is turning to a provision of the Digital Millennium Copyright Act intended to prevent people from disabling technology that protects games, songs and movies from illegal duplication. The DMCA says that you can't distribute tools that break – or circumvent – technological measures that control access to copyright works.

But CellPhoneCo isn't asserting that Unlocko's program copies any copyright-protected software or content. Its claim is more subtle.

Unlocko's software reprograms your mobile phone so it bypasses the "secret handshake" CellPhoneCo's locking software requires before the phone will operate. After "circumventing" the handshake requirement, the phone – like virtually any modern piece of electronics – runs software installed on its internal chip.

But other resourceful manufacturers have tried similar tactics to lock customers into aftermarket goods and services, and failed in the end.

For example, printer company Lexmark wanted its customers to buy its brand name refill cartridges instead of cheaper generic ones. It programmed the printer software to require a "secret handshake" from the cartridge before it would operate. When competitors figured out how to make their cartridges work in Lexmark printers regardless, the company sued, claiming that the competitors violated the DMCA because software on the generic cartridge chip was circumventing the secret handshake and accessing the copyright-protected software in the printer.

In the trial court, Lexmark won, perhaps inspiring the Chamberlain Group, a garage door company, to file a similar case against a competitor that sold universal garage door openers. In that case, however, the trial court rejected (.pdf) Chamberlain's DMCA argument. The court decided that Chamberlain had no legal right to control how its customers open their own garage doors.

This view probably influenced the 6th U.S. Circuit Court of Appeals, which reviewed the Lexmark decision, because it later reversed (.pdf) the trial court, explaining that printer owners had an unfettered right to run software installed on their printers.

A court should view CellPhoneCo's DMCA argument the same way. It's true that by tying customers into CellPhoneCo's service, the company can provide cheaper phones. But CellPhoneCo is legally entitled to receive its expected future revenue under its service contract with the customer, regardless of what service the customer uses. Meanwhile, customer choice means mobile users can select the best service now, while breeding competition that will improve both price and quality for all users.

Most importantly, CellPhoneCo shouldn't be able to stop Unlocko, a company with which it has no contractual relationship, from making a product that fosters consumer choice and competition.

In the physical world, we instinctively understand that the law doesn't forbid you from installing generic parts in your Honda, and that the Maytag repairman isn't the only person allowed to service your washing machine. CellPhoneCo hopes to use the law to create an unbreakable bond between selling phones and selling wireless service. If courts protect anti-competitive business practices, customers won't simply be making contractual promises not to buy from other vendors – other vendors won't even exist. We literally won't know what we're missing.